Category: Advanced Markets

The new tax act provides plenty of opportunities for implementation of business funded life insurance strategies. This Principal brochure is focused on tax changes for business owners and provides a great analysis of what the changes mean and where the opportunities are. These will be some of the more obvious opportunities. C Corp tax bracket arbitrage; Split Dollar planning. Elimination of Corporate AMT; less concern for larger corporations owning life insurance Pass through Business Deduction; use of the tax savings to over fund a permanent life policy with a design that funded in 5-7 years and focuses on maximizing IRR on CV. Pay attention to the “analysis” section of the brochure. It provides great insights. As always if you have questions about this or any other advanced sales topic contact me at The ASA Group. Michael E. Kepesky, JD CFP CLU ChFC Director of Advanced Markets The ASA Group AR State License # 1665547 11807 Hinson Road, Little Rock, AR...

(Goodman 156 F.2d 218 2d Cir. 1946) A top reason for Life Insurance Reviews The Goodman Rule was established 72 years ago. It is a basic rule of life insurance design and it is violated often. Violators are equal opportunity, business and personal insurance alike are continually set up incorrectly. I will summarize the rule and provide some examples. First the basics: All insurance policies have an insured, owner and beneficiary. All insurance death proceeds are expected to pass free from income and gift taxes. The Goodman rule states that for death proceeds to pass free from gift and income taxes only two people/entities can be the owner, insured and beneficiary of a life policy. Example #1 Business Violation: Businesses commonly purchase life insurance on key employees. Often the business will split the proceeds between the business and the spouse of the key employee. Business purchases 2M policy on Key Employee and names Spouse beneficiary of 50% of the proceeds. At death, the Spouse receives 1M death benefit and it is considered either a taxable dividend or taxable compensation. The Goodman Rule has been violated; Business-Owner; Employee-Insured; Spouse-Beneficiary. Solution: To avoid a Goodman Rule violation the Business should have been the owner and beneficiary. If 1M of the proceeds should go to the spouse an Endorsement Split Dollar agreement could have been entered into. Another easy solution is to...

I recently had a couple of conversations that are worth sharing. At the same time John Hancock has delivered two publications which are right on point… We performed a policy audit for a family of moderate wealth. The family held policies in an Irrevocable Life Insurance Trust to cover wealth transfer taxes. But, due to increases in the exemption equivalent, this family no longer has an estate tax issue. When a client realizes the reason they have been paying insurance premiums for years no longer exists, they may likely conclude that their insurance is no longer needed. The attached brochure; Because You Asked; The History of the Estate Tax, shows how unpredictable the Estate Tax truly is. It has been repealed four times in the past 200 years and my sense is that while the deficit is out of control, you shouldn’t expect expanded exemptions to be permanent. The second conversation was with a person of significant wealth who questioned why someone would put money in cash value life insurance. Life insurance offers three key benefits which the industry fights fiercely to protect; tax free death benefit, tax favored withdrawals, and tax deferred growth. Accumulation of significant dollar amounts in life insurance is more about diversification than investment performance. I once asked a room full of CPA’s how many of them diversify their investments. Nearly every hand shot up (I...

Tsunami’s are primarily caused when an earthquake happens in the ocean. They can also be caused by landslides, meteors, storms, etc. They are unexpected, difficult to predict and the consequences can be catastrophic. Carrier cost of insurance (COI) increases don’t take human life; however, they are unexpected, difficult to predict and their consequences on permanent life insurance can be devastating. Fortunately, like earthquakes in the ocean they don’t happen very often. They ARE occuring with more frequency now. We currently have 10 carriers (and counting) who have increased COI’s. It’s a real problem, pay attention! Here are some of the examples cited by a top carrier for COI increases: updated mortality assumptions lower investment earnings updated expenses updated persistency/lapse assumptions Let’s look at these more closely… People are living longer and mortality is decreasing. That should be a good thing right? Live longer, pay more premiums. Every illustration I see with IRR numbers show lower IRR on cash value and death benefit the older the policy is which should be good for the company. However, lower investment earnings are really hurting carriers. We need interest rates to increase. General accounts of carriers are heavily vested with investment grade bonds. Average maturities are @10 years, the yield curve has been declining for decades and is just now starting to turn. Bond portfolios don’t turn around overnight so it could be...